Computing equilibria in finance economies with incomplete markets and transaction costs
AbstractTransaction costs on financial markets may have important consequences for volumes of trade, asset pricing, and welfare. This paper introduces an algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets and transaction costs. We show that economies with transaction costs can be analyzed with differentiable homotopy techniques and thus in the same framework as frictionless economies despite the existence of non-differentiabilities of agents’ asset demand functions and the existence of locally non-unique equilibria. We introduce an equilibrium selection concept into the computation of economic equilibria that picks out a specific equilibrium in the presence of a continuum of equilibria. Copyright Springer-Verlag Berlin/Heidelberg 2006
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 27 (2006)
Issue (Month): 3 (04)
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Other versions of this item:
- P. Jean-Jacques Herings & Karl Schmedders, 2001. "Computing Equilibria in Finance Economies with Incomplete Markets and Transaction Costs," Discussion Papers 1318, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Herings,P. Jean-Jacques & Schmedders,Karl, 2000. "Computing Equilibria in Finance Economies with Incomplete Markets and Transaction Costs," Research Memoranda 049, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- Herings, P. Jean-Jacques & Schmedders, Karl, 2006. "Computing equilibria in finance economies with incomplete markets and transactions costs," Open Access publications from Maastricht University urn:nbn:nl:ui:27-12158, Maastricht University.
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